E-commerce Giants Case Study

Which Giant Will Dominate E-commerce?
CASE STUDY
by:
Roslinda Perangin-angin
1009200020082
MM - LIV/A

The concepts illustrated in this case are value
chain and competitive forces models.
Business Value Chain Model
• Views firm as series of activities that add value to
products or services
• Highlights activities where competitive strategies
can best be applied
• Primary activities vs. secondary activities
• At each stage, determine how information
systems can improve operational efficiency and
improve customer and supplier intimacy
• Utilize benchmarking, industry best practices
1. What concepts in the chapter are illustrated in this case?

The Value Chain ModelThe Value Chain Model

Michael Porter’s competitive forces model
• Provides general view of firm, its competitors,
and environment
• Five competitive forces shape fate of firm
• Traditional competitors
• New market entrants
• Substitute products and services
• Customers
• Suppliers

Porter’s Competitive Forces ModelPorter’s Competitive Forces Model
In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not
only by competition with its traditional direct competitors but also by four forces in the industry’s
environment: new market entrants, substitute products, customers, and suppliers.

AMAZON
Amazon developed a value chain of itself to internal it can
operationally best add value and maintain a competitive
advantage.
They used the value chain model from Michael Porter's
book, "Competitive Advantage: Creating and Sustaining
Superior Performance."
2. Analyze Amazon and Walmart.com using the value chain and
competitive forces models

Primary Activities and Support Activities
Primary activities are those needed to produce a product or
services for the end customers. These activities typically include:
Inbound Logistics: receiving goods from suppliers, and storing
and moving those good
Operations: Manufacturing or assembling the product
Outbound Logistics: Sending the goods to wholesalers,
retailers or directly to the end customer
Marketing and Sales: Marketing involves understanding
customer needs, communicating those needs, and promoting the
end products.
Service: Involves after-sales support (e.g., handling, complaints,
installation, training)

Support activities help to facilitate or assist the primary activities of
producing product. Examples include:
Procurement: purchasing raw material and other items used in
operations
Human Resource Management: recruiting, hiring, firing,
training, developing, compensating
Technological Development: research and development,
process automation, software, hardware, equipment, etc., to
support operations
Infrastructure: May include accounting, legal, finance, planning,
public affairs, government relations, quality assurance and general
management.

Some of Amazon's competitive advantages from a value chain
perspective include:
 Strong technological infrastructure with a single platform
 High investments in technology development (e.g., Kindle)
to best leverage digital products
 Great product forecasting system
 Print on demand
 Constantly soliciting suggestions on new products
 Easy and fast payment system
 24 hour operations
 Free returns within 30 days

WALMART
In reference to the Five Forces Model, being the largest retailer in
the world, Wal-Mart’s position is strong overall.
 Rivalry among competitors is fairly weak. The market is
crowded but Wal-Mart has the lowest costs, prices, profits, and
market share.
 The threat of substitute products is also weak. Wal-Mart exerts
a great deal of effort in making sure they are innovative and
meeting customer demands.
 The bargaining power of suppliers is weak as well. For most
producers, Wal-Mart would be their largest account.
 The bargaining power of buyers is also weak. There is a very
broad base of customers and a significant demand for low prices.
 The threat of new entrants is weak. Wal-mart has a scale of
operation that is so great, it would take years, maybe even
decades, for a new company to be on the same level. Even
prominent companies today would have an extremely difficult
time matching the costs and prices Wal-Mart provides.

WALMART’s INTERNAL VALUE CHAIN

WALMART’s EXTERNAL VALUE CHAIN

A more sophisticated analysis of Wal-Mart’s internal value chain
reveals:
 It is very aggressive with respect to technology (one of the support
activities) and was the first retailer to use bar codes. It uses satellite
linkages to communicate with all its stores. It has integrated its POS,
inventory-control, RFID, and other logistical technologies to speed product
delivery, improve security (including merchandise shrinkage), and reduce
costs.
 It has developed regional procurement centers in addition to its
legendary center in Bentonville, Arkansas (known as ‘‘Vendorville’’). It even
has one just outside Shenzhen, China. Suppliers set up satellite offices
next door to the most convenient procurement center. For example, Procter
and Gamble, Wal-Mart’s largest supplier, has 300 employees fulltime in
Bentonville.
 It focuses on the complete ‘‘customer experience’’ – having someone
welcome each customer to the store, helping them find what they are
looking for, taking returns, and carrying merchandise to the customer’s car.

Because Wal-Mart is a retailer, not a manufacturer, its external
value chain is extremely simple. It deals with a variety of vendors
and sells to customers. But the secret to discovering what makes
Wal-Mart great lies in examining its internal value chain.
Some of Walmart's competitive advantages from a value chain
perspective include:
 distribution capabilities: efficient distribution (e.g. cross
docking), predominance of Walmart’s own distribution centers
and “inside-out” location strategy
 partnership relationship with suppliers: integrates
suppliers via IT & treats them well in terms of pricing, they
are more partners than “value takers”
 advanced data mining: active collection and usage of
customer purchase behavior info
 workforce culture: customer-oriented workforce
motivated through generous monetary participation and
belief in Walmart’s culture
 EDLP: maintenance of “Everyday Low Prices”

The management, organization and technology factors that
have contributed to the success of Wal-Mart:
1.Strategy of managing cost
Budgeting payroll cost
Saving on business travel cost
Investing in technology: energy system, new equipped store,
and RFID
Eliminating unnecessary costs
2.Strategy of managing growth
Location
Acquisition
3.Strategy of managing people resources
Motivating employee
Internal promotion
External recruitment
3. What are the management, organization, and technology factors that have
contributed to the success of both-Wal-Mart and Amazon?

All in all, by implementing these three important strategies successfully,
Wal-Mart has become from a single store to the biggest retailer in the US
and to the biggest company in the world.
The cost management strategy of Wal-Mart wills create an operational
model with the lowest cost which will increase the margin of profit on the
financial statements.
Moreover, the growth management strategy had dragged Wal-Mart into
the right direction of investment and expanded radically around the
distribution center.
Lastly, the people management strategy inspires all associates to work
more efficiency and creates a great workplace environment which full of
self-improvement, competition, and respects. It also provides an
opportunity for people to build-up experience from the low-rank position to
the high-rank position.
Therefore, strong management in these three strategies had transformed
Wal-Mart into the biggest company in the world with the highest number of
employees worldwide and had also provided benefits to millions of people
around the world by transferring unnecessary cost into low-cost products.

have contributed to the success of Amazon:
1.Convenience and ease of use
Large selection: publisher relations, wholesale relations,
unlimited virtual shelf space
2. High Performance Service
Website is fast, reliable, and easy to use
Shipping is prompt
Customer is kept informed
Innovative technology
3. Brand share of mind/Networking
Short, clever name/URL/tag line
Referral program
Co-branding, cross promotion and high advertising

have contributed to the success of Amazon (con’t):
4. Community
Posting customer reviews with author reviews
Customer gifts: bookmarks, notepads, cups, etc
Promotion where customers collaborate with famous authors
5.Personalization/Large customer database
Extensive customer profiles
Recommendations
Other readers who bought this title also bought
Other readers who bought this author also bought
6.Trust
Guarantees
Return policy
Great customer service: superior service reps, easy search, no
hassle return, email confirmation

have contributed to the success of Amazon (con’t):
7.Extended Service
Extensive subject index
Search
Ability to order before publication
Out of print search
8. Cost Structure
Low price
Low overhead: less employee, less real estate, low inventory
9.Logistics
Fast, reliable, inexpensive shipping
Originally no inventory, use Ingram

Wal-Mart’s e-commerce business model
Possibly the single greatest success story of e-business and B2B
implementation is that of the rise to dominance by Wal-Mart in the North
American retail market. Wal-Mart’s impressive growth in such a short time
span and arguably the single most important factor in this rise was their
harnessing of the power of e-business, e-procurement, and the adjustment
of internal processes to maximize this advantage.
More than any other company, Wal-Mart has revolutionized supply chain
management by using a “pull” model where customer demands drive the
suppliers. Inventory control is finely honed and purchasing trends are
available to suppliers, whom now must be able to quickly respond to the
needs of millions of customers. The business decision to decentralize the
procurement process means that front-line staff in every store can
immediately order the appropriate stock electronically, which will in turn
require rapid turnout of product from the suppliers. This rapid
replenishment system, coupled with accurate purchasing forecasting, helps
Wal-Mart reduce overall costs.
4. Compare Wal-Mart's and Amazon's e-commerce business models. Which is
stronger?

Wal-Mart’s e-commerce business model (con’t)
While not always good for suppliers in general, Wal-Mart’s power
as a giant in business has helped in establishing new standards
for B2B e-commerce.
Wal-Mart’s mindset of cutting costs at all costs resulted in them
deploying EDI over the Internet to eliminate the costly VAN
altogether.
EDI over the Internet (EDI-INT) uses a new standard called AS2,
a communication protocol that attempts to make EDI
communications over the Internet both secure and reliable. By
mandating their suppliers to use AS2, Wal-Mart leads the way in
creating a demand for a new generation of EDI, and in turn drives
the whole world of ebusiness forward.

Amazon’s e-commerce business model
Amazon started as a store that focused primarily on books and music.
It quickly expanded to other segments and now sells products in
nearly every segment – apparel, home improvement, groceries. In
addition, Amazon has expanded from a Business-to-Consumer (B2C)
only store to a mixed model with its corporate account functionality
that focuses on business buyers. Added to the mix, is the Amazon
marketplace – Amazon's answer to eBay- which allows merchants to
list their products and customers to purchase from merchants while
using Amazon's eCommerce platform.
As a provider of eCommerce software to mid-market, we use Amazon
as a reference for the features it has on the web store. Some of these
features not easily found on other sites include the ‘1-Click Ordering’,
‘Customer Viewing’, ‘Recently Viewed Products’, ‘Keyword Auto-fill’ on
the product search, ‘Your Personalized Store’, and ‘Items to Consider’.
While some of these features are relatively easy to implement e.g. ‘1-
click Ordering’, others are not so easy and require an advanced
platform.

Amazon’s e-commerce business model (con’t)
But selling goods isn't the only way to make money with Amazon.com. The
Web site's affiliate program is one of the most famous on the Web.
Through Amazon's Associate Program, anyone with a Web site can post
a link to Amazon.com and earn some money.
The associate can also take advantage of Amazon Web Services, which
is the program that lets people use Amazon's utilities for their own
purposes. The Amazon Web Services API (application programming
interface) lets developers access the Amazon technology infrastructure to
build their own applications for their own Web sites. All product sales
generated by those Web sites have to go through Amazon.com, and the
associate gets a small commission on each sale.
On the flip side, Amazon seems to not have kept up with the Web 2.0 and
Web 3.0 user interface improvements and for most part still incorporates
Web 1.0 technology which means – you still need a mouse click to view a
product as opposed to being able to see product details with a mouse roll-
over. Amazon could use a make-over to make for a snazzier shopping
experience.

I think Amazon’s e-commerce business model is stronger than
Wal-Mart’s e-commerce business model because E-commerce is
Amazon’s core mission and environment.
Amazon started with a store that was fairly feature-rich for its
time and has gone on to strengthen that foundation. Today, it
probably ranks as the leader in terms of the richness of its e-
Commerce features, product breadth, personalized
recommendations and depth of content available across
eCommerce sites. However, there is a need for Amazon to offer a
simplified and hipper shopping experience as an alternative which
many other sites now offer.
I don't think Wal-Mart will displace Amazon any time soon, if
ever, but it gives them a good shot of increasing their overall Web
penetration. Amazon's value proposition until now has been a
broad assortment. This enables Walmart to compete with other
companies with big assortments.

I would prefer to make my internet purchases at Amazon because
the richness of the content on a product detail page is absolutely
amazing.
Not only can customers view product images uploaded by Amazon
but other customers can upload images and include relevant
content to that. The quality of the customer reviews is better
than just about any other eCommerce site. Not only can
customers post a review (which most sites offer) but other users
can vote on the usefulness of the review. Some reviewers have
actually built their following on Amazon.com with good quality
reviews.
Even when shopping at another store, I find myself going to
Amazon.com to see the user feedback on the product. Other
examples of rich content are user-specified tags and the ability to
preview a book without purchasing – bringing the “browsing a
book at Borders” experience in home.
5. Where would you prefer to make your Internet purchases? Amazon or
Walmart.com? Why?

In short, I choose to make my internet purchases in Amazon with
considerations as follows:
 Rich shopping features
 Strong analytics for product recommendations
 High quality content and very detailed product descriptions
 User generated reviews and usefulness ratings of reviews

E-commerce Giants Case Study

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